Waiver of Right to Object in Arbitral Proceedings: What the Supreme Court observed [Read Judgment]

In the course of the judgment, the Court has also commented on why the specification of a "place of arbitration" may have more significance in International Commercial Arbitration, rather than in domestic arbitration.

The Supreme Court on Wednesday had occasion to make pertinent observations regarding when a party would waive the right to object to the conduct of arbitral proceedings. (Quippo Construction Equipment ltd vs. Janardan Nirman Pvt. Ltd.)

The Bench of Justices UU Lalit and Vineet Saran pointed out that when a party chooses not to participate in the arbitration proceedings and fails to register its objections before the arbitrator, such party may later be barred from raising objections after an ex parte arbitral award has been passed.

In this regard, the relevant provision is found in Section 4 of the Arbitration and Conciliation Act, 1996 which states:

Waiver of right to object: A party who knows that (a) Any provision of this Part from which the parties may derogate, or (b) Any requirement under the arbitration agreement; has not been complied with and yet proceeds with the arbitration without stating his objection to such non-compliance without undue delay or, if a time limit is provided for stating that objection, within that period of time, shall be deemed to have waived his right to so object.

Factual Background

The case at hand involved four agreements containing arbitration clauses between two parties, of which three agreements designated New Delhi as the venue, whereas one agreement stated Kolkata as the place of arbitration.

When disputes arose between the two parties, a sole arbitrator was appointed to conduct arbitration proceedings in New Delhi. One of the parties (respondent), however, had objections to the conduct of these arbitral proceedings and chose to move civil proceedings in this regard before civil courts.

The arbitral proceedings continued without the participation of the respondent, and culminated in an ex parte award being passed in the opposite party’s (appellant’s) favour in March 2015. Notably, this was a common award covering the claims in respect of all four agreements between the two parties.

Initially, the Calcutta High Court declined to intervene in the matter, dismissing a challenge preferred by the respondent to the March 2015 common award in July, while querying how the plea could have been moved before it.

A subsequent plea was moved by the respondent before the District Court in Alipore, contending, inter alia, that one of the four agreements designated Kolkata as the venue of arbitration. This plea was eventually dismissed, prompting a challenge before the Calcutta High Court.

In February 2019, the Calcutta High Court gave a ruling favourable to the respondent, leading the opposite party (appellant) to challenge the same before the Supreme Court.

What the Supreme Court held

Before the Supreme Court, the respondent raised objection to the passage of a common award for all four agreements, arguing that each agreement ought to have resulted in independent arbitral proceedings. Adding on, it was pointed out that Kolkata was the stated venue of arbitration in one of the agreements, whereas the arbitral proceedings were conducted in New Delhi.

The Supreme Court was, however, was not convinced that the respondent would have a case at this stage since, at no stage, were the aforesaid objections raised by the respondent before the Arbitrator. Rather, it was noted that respondent let the arbitral proceedings conclude and culminate in an ex-parte award.

“… the question that arises is whether the respondent could be said to have waived the right to raise any of the aforesaid objections?” the Court queried.

The question was answered in the affirmative, with the Bench observing that,

“Considering the facts that the respondent failed to participate in the proceedings before the Arbitrator and did not raise any submission that the Arbitrator did not have jurisdiction or that he was exceeding the scope of his authority, the respondent must be deemed to have waived all such objections.”

Supreme Court

The Court also made note that the respondent’s objections regarding there being two different venues for arbitration in the agreements did not appear to have any practical force. In this regard, it was pointed out that, “It is not as if there were completely different mechanisms for appointment of Arbitrator in each of the agreements. The only distinction is that according to one of the agreements the venue was to be at Kolkata."

The Court added,

"The specification of 'place of arbitration' may have special significance in an International Commercial Arbitration, where the 'place of arbitration' may determine which curial law would apply. However, in the present case, the applicable substantive as well as curial law would be the same.”

Supreme Court

“In the circumstances, the respondent is now precluded from raising any submission or objection as to the venue of arbitration”, the Court concluded.

The appeal was, therefore, allowed and the Alipore Court ruling was restored.